CreditCardCo Blog

TransUnion reported today that the average credit card debt fell to $4,878 in the first quarter of 2013. This is great news and ideally will reveal a more confident consumer heading into the summer months.

We’re better at not only making on-time payments, but more of us are also paying more than the minimum due. This is indicative of a 4.8 percent drop from fourth quarter 2012 and down 1.7 percent from first quarter 2012. At that time, the average debt came in at $4,962.

Credit Card Debt and Consumers

Some analysts are saying the collective American consumer is beginning to shift his focus and outlook on his personal finances. Still others insist this is little more than a “traditional fluke” in that people are using their income tax refunds and are historically more disciplined in paying down credit card debt the first three months following the busy holiday season. Either way, it’s a bit of good news for an economy that, frankly, could still go either way, says Ezra Beckler, Vice President of Research and Consulting at TransUnion.

But there’s another important factor that must be taken into consideration. The analysis of credit card trends also includes origination rates, or the speed and volume of new credit card accounts being opened. In this way, these new credit card originations dropped by 1.6 percent. Those with subprime credit who applied for credit cards and were approved dropped as well. Those with the new Vantage Score and who came in at less than 700 are considered subprime. Only 28 percent of those subprime applicants were approved for credit cards and other revolving accounts.

Though fourth quarter credit card originations had dropped compared to the prior year, the number of new credit cards entering the marketplace is still significantly greater than what we saw just a few years ago,

said Beckler.

Loan Officers Respond

There could be even more of a shift in coming months. A new FTC survey asked loan officers at banks and credit unions whether or not there are changes they’ve witnessed in terms of credit card approvals, applications, lowered credit card debt, etc. Turns out, consumers are turning to credit cards again and the banks and credit card companies are easing the qualification burdens; albeit slightly. More than 7 percent of those surveyed said the credit standards are beginning to loosen for both individuals and businesses. The other 93 percent say there has been no easing, but that the requirements are at least steady.

More than half believe the standards will begin to loosen even further as the year progresses.
In an interesting twist, it’s clear human nature is kicking in because we seem to have forgotten how bad things were during the recession. As the financial institutions continue to loosen requirement models, the demand for credit cards is growing; in fact, the desire for them is outpacing the access to them. Nearly 20 percent of banks only say there’s at least a “moderately stronger” demand. As mentioned, the survey was directed towards loan officers and 68 American banks participated. Michael Walden, an economics professor at North Carolina State University, said,

I think consumers will remain cautious…the tightening of household budgets in response to the financial crisis and recession has built a pent-up demand for durable goods such as appliances, which in turn is generating more need for credit.

There’s another interesting dynamic, too. You may recall that the banks, card networks and the financial sector as a whole insisted during the recession that moving forward, there would be far stricter approval guidelines put in place. The writing was on the wall: bank loan officers made it clear their priority would be placed on secured loan products and business models. Credit cards were then – and now – risky for lenders.

While there did exist a massive tightening of the rules for a couple of years, the truth is, even the determined policy makers are rethinking their decisions made during the recession. Banks also began cutting credit limits on their credit cards; soon after, the balances began spiraling down. What many didn’t consider is that the debt was charged off in many instances.

Other Statistics

Number of loan officers that:

Said credit limits on credit cards “eased somewhat”: 10.4%

Said credit limits on credit cards “eased considerably”: 2.1%

Said credit limits on credit cards were “tightened”: 2.1%

Number of banks that:

Said approvals for automobile loans “eased somewhat”: 12.1%

Said approvals for automobile loans “eased considerably”: —%

Said approvals for automobile loans “tightened”: 1.7%

When it comes to prime mortgages, 9.1% said the standards have “eased somewhat” while 1.6% said those standards tightened.

And it could be good news for those with credit problems, too. Score requirements for card applicants “eased somewhat” at 8.3 percent of surveyed banks, while 2.1 percent tightened their standards. James Marple, senior economist at TD Economics, said,

There’s some evidence the very strict FICO scores you previously needed have come down a bit, but on the revolving (credit) side, it’s still been very weak.

Business Owners

If you’re a business owner and you’ve tried to secure any type of revolving accounts, including business credit cards, you very well could have found fewer hurdles to jump through. Banks are beginning to ease those standards; in fact, nearly 20% of the loan officers said access to commercial and industrial loans as well as credit cards and other similar financial products has been eased. Not a single loan officer said they’d noticed tightened access.

Barclays L.L. Bean Visa

Thinking it’s time to do some comparison shopping for a better credit card offer? The L.L. Bean Visa is a great place to start. It has no annual fees, 3% cash back in rewards for your L.L. Bean purchases, 1% cash back for everything else and $10 gift cards to go along with your rewards program. Another reason this is a great choice is the remarkable customer service you’ll receive as a card member. Free return shipping, free monogramming and a host of other perks. A good credit rating can get you approved.

Another trend we’re beginning to see is found in the 0% intro rate credit card offers. These financial products make it easy to save money, especially if there’s a balance transfer benefit.

Discover It

The Discover It is just one of those many stellar credit offers. You’ll enjoy the option of choosing your own due date, a 0% intro rate for both balance transfers and purchases for fourteen months, no annual fee, no over limit fees and if you pay late, the first time won’t cost you anything. Also, the 5% cash back rotating categories are carefully chosen for the time of year it is. For instance, department stores are part of the late summer quarters because parents are looking for ways to save money when buying school clothes.

This is an instant decision credit card offer with more than a few impressive benefits.

Hopefully, stories like these will continue to emerge as we continue to recover from these past several years of frustrating economic times. Whether you want to wait a few months to be sure your credit scores have increased or if you’re not certain of what the future holds in your career, one thing you can bank on is the competitiveness in the credit card industry.